Japanese investors to maintain hedge fund allocations, says survey

Japanese investors plan to maintain the size of their hedge fund allocations this year, according to a survey by AIMA Japan and Eurekahedge.

The survey of more than 130 investors with over USD3.8 trillion in assets revealed that the average percentage of their alternative investment portfolio going to hedge funds will remain the same for 2014 as for 2013, at 72.5 per cent.

The survey follows strong recent performance by Japanese-investing hedge funds and funds of funds, which were up about 28 per cent on average in 2013.

Many respondents indicated that they intend to raise their exposure to long/short equity hedge funds and event-driven strategies, with allocations on average being reduced to CTA/managed futures funds, macro funds and fixed income strategies.

The survey found that most Japanese investors plan to increase their allocations to global, Asia ex-Japan and Middle East/Africa mandated funds, while trimming their portfolio exposure to Latin America and Europe. Their exposure to Japan would continue at existing levels.

For the majority of the investors in the survey, performance, risk management and track record were the key factors behind their investment decisions. Brand names, governance structure and liquidity ranked lower on the scale.

In terms of regulatory challenges facing the industry, more than one-third of investors cited the prospect of increased inspections and regulations as the biggest regulatory issue facing the hedge fund industry in Japan. Around one-quarter of the respondents also said they were concerned about the impact of the US Dodd-Frank Act and the need for managers to register with the US Securities and Exchange Commission. A similar proportion expressed concerns about tougher capital requirements for funds under Basel III.

Asked about the prospects for the Japanese economy, the mostly Japanese-based investors in the survey expressed generally positive sentiment. Almost 90 per cent regard the economic policies of the Japanese Prime Minister Shinzō Abe – dubbed “Abenomics” – favourably, while 72 per cent predicted that its positive impact will continue in 2014. Regarding the Nikkei 225 index, 72 per cent expected it to finish the year above the 15,000 mark and 51 per cent thought it could reach higher than 20,000.

Shinichiro Shiraki, chair of AIMA Japan, says: “This survey is a further sign of very high satisfaction levels among investors about their hedge fund allocations. In Japan, as elsewhere globally, institutional investors recognise the many useful roles that hedge funds are able to play in their portfolios.”